RBC's Lori Calvasina breaks down her 8,150 S&P 500 year-end target
Speakers
Lori Calvasina
— Head of U.S. Equity Strategy, RBC Capital Markets
Summary
Lori Calvasina, RBC Head of U.S. Equity Strategy, presents a 12-month S&P 500 target of 8,150 (10.8% upside) driven by strong earnings and AI momentum. She unveils sector allocation changes: upgrading Technology to overweight, downgrading Communication Services to market weight, and flagging Industrials as dangerously overvalued. Consumer Discretionary is moved to market weight and Utilities to underweight. The discussion highlights model-driven stress tests, valuation dynamics, and a constructive equity outlook even under conservative macro assumptions.
- RBC's 12-month S&P 500 target is 8,150, anchored to robust earnings and AI growth
- Technology sector upgraded to overweight as valuations near neutral and flows improve
- Communication Services cut to market weight on fading relative attractiveness
- Industrials flagged as valuation risk with slowing flows, though fundamentals are strong
- Consumer Discretionary moved to market weight; no strong thesis given
- Utilities downgraded to underweight as a portfolio construction necessity
- Stress tests show limited downside even with earnings cuts; bearish case requires attacking AI earnings
Ideas
Bullish S&P 500 on strong earnings
RBC's 12-month S&P 500 target is 8,150, implying a 10.8% gain from the June 25 close. The call is driven by strong earnings, particularly the AI earnings story. Multiple models (Fed, GDP, valuation/earnings) all point to upside, with the lowest model at 7,777. Stress tests show that even with a 5% cut to consensus earnings the target remains above 8,100. Sentiment (AAII survey) is not frothy, and historically when sentiment hovers at average to one standard deviation below average it has generated a 10.8% return over the next 12 months.
Upgrade tech on better valuations, flows
RBC upgrades the Technology sector to overweight. Valuations have improved: the sector valuation model is now very close to neutral after dramatic improvement on the software side and some retreat in semis. Fund flows into tech have been very strong and quickly bounced back after recent small outflows. The sector is now the preferred growth exposure, replacing Communication Services.
Downgrade comm services on weaker profile
RBC downgrades Communication Services to market weight. The sector no longer looks like the preferred growth area. Its valuation attractiveness has faded relative to the past, earnings revision trends are less compelling, and fund flows are not as strong as in Technology. The preference is shifting away toward Tech.
Industrials overvalued, market may correct it
Industrials are flagged as extremely overvalued on a 30-year horizon and are the sector that 'sticks out like a sore thumb' on valuation. The market in 2024 has aggressively punished expensive segments (semis, metals and mining, Mega Cap Tech earlier) and now Industrials are the candidate for similar pressure. Fund flows are beginning to slow, even though fundamentals remain strong. The sector was not officially downgraded but the warning is explicitly highlighted.
